Google's Goofy Formula
Google (GOOG) spent much of Wednesday trying to persuade investors it's serious about making money.
The irony was considerable, what with Google's profit having quadrupled last year and shareholders having reaped millions of dollars selling the ever-climbing stock.
But trying to persuade investors that there's a method to Google's moneymaking magic appeared to be a key element of the company's first-ever analyst day. The event was Webcast from the company's Mountain View, Calif., headquarters Wednesday.
That's what happens when you're an Internet phenomenon with youthful founders, explosive revenue growth and a passion for secrecy.Google's shares, which went public last August at $85 per share and hit $216.80 last week, fell $6.89 Wednesday to $191.75. A secret to understanding Google, CEO Eric Schmidt told analysts, is "we're actually not as unconventional as we say we are." In an illustration of that, Schmidt shed some light on the methodology by which Google invests its resources. The search-engine operator -- which has long acknowledged that its employees are encouraged to spend 20% of their time on self-driven projects -- actually has a precise formula for resource deployment, Schmidt said. Seventy percent go to core businesses of search and advertising, said Schmidt, including products and services such as combing through the Internet, ranking the relevance of content and image search. Twenty percent go to extensions of core search, currently including Google News and the Froogle shopping search engine. Ten percent goes to exploratory issues such as the Picasa picture service and wireless services. Schmidt alleged that Google co-founder Sergey Brin had come up with a mathematical formula that allegedly "proved" the 70-20-10 allotment. Perhaps more credibly, Schmidt asserted that every company that has forgotten to remain innovative has ultimately lost its way as technology changes.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV